“In advance of tonight’s meeting, Finance Commission Chairman Peter Gorry sent the following email to council members. Gorry’s “white paper” is evidence of the fact that the proposal to use reserve funds to balance the coming year’s budget has been a distraction from an equally, if not more important discussion about what constitutes a sustainable tax rate. In his summation to the council, Gorry makes no mention of the city’s tax rate.”
Editor’s note: This story has been updated to include the following sentence: Councilwoman Amelia Graves, who was absent from last week’s budget meeting due to a death in her family, had indicated a willingness to use reserves, but only in conjunction with some tax increase and cuts in spending.
Whether and how to use reserve funds has been a hot topic in Vero Beach, since City Councilman and Indian River County Commission candidate Jay Kramer proposed using reserves as a way of funding budget increases without raising races. From the first budget workshop, Kramer, who is challenging incumbent Bob Solari for a seat on the County Commission, said he did not want to increase the city’s property tax rate, which is among the lowest in the state.
Acting on a request from the City Council, the finance commission considered alternatives, and, buy a vote of 4-1, proposed drawing down reserves to help balance the 2015/2016 budget. The Finance Commission’s recommendation could have been the political cover Kramer was looking for to increase spending without raising taxes, but the remainder of the Council wasn’t going of it.
Absent a policy on how to use reserves, Council members Randy Old, Pilar Turner and Mayor Richard Winger have been unwilling to dip into reserves to pay for recurring expenses. Councilwoman Amelia Graves, who was absent from last week’s budget meeting due to a death in her family, had indicated a willingness to use reserves, but only in conjunction with some tax increase and cuts in spending.
Old has been the most outspoken in arguing against using reserves as a way of avoiding a discussion about what level of property tax rate and revenue is needed to support the superior municipal services that have helped to make Vero Beach a special community.
Tonight, the Council will meet again in special session to consider the 2015/2016 budget and to approve a property tax rate for the coming year.
In advance of tonight’s meeting, Finance Commission Chairman Peter Gorry sent the following email to council members. Gorry’s “white paper” is evidence of the fact that the proposal to use reserve funds to balance the coming year’s budget has been a distraction from an equally, if not more important discussion about what constitutes a sustainable tax rate. In his summation to the council, Gorry makes no mention of the city’s tax rate.
The CC charge to the FC was to reduce taxes without cutting services, or capital expenditures. There is
an additional proposal to establish a Stormwater Utility which would cost $1.5M,@ $1M borne by ad valorem tax payers. Although the emphasis is on residential taxes, increases apply to al non exempt property.
Although I had worked with Vice Mayor Kramer, the proposal to the CC was mine, following nearly 3 hours of discussing the issues. CC member Old, the City Manager and Finance Director extensively presented their opinions. Mr Kramer was not at the meeting.
The initial option of utilizing a portion of the Reserve was offered by Craig Dunlap, COVB’s Financial Advisor.. recognizing that there is no CC policy on the level or use of these funds. Establishing such a policy was central to the FC recommendation.
The following issues/ concepts were considered:
The Government Financial Officers Association (Ms. Lawson is a member) provides best practices re minimum reserves and published in 2013 and 2015 an extensive risk based analysis, case study, and recommendations for use and level. The study outlined a process for establishing a policy and essentially divides the reserves into two equal tiers: Budgetary (tax uncertainty ‘pension payment uncertainty, transfer and other revenue/expense uncertainty) ; and Emergency (law suit spikes, extreme events, critical infrastructure/stormwater replacement) I have studied the publications and discussed the issues with the co-author.
Mr. Old arranged for a CC presentation by Mike Levinson a consultant with Dunlap Associates and former City Manager of Coral Springs, FL He was introduced as an professional strategic planner; reserve levels were a portion of the discussion (his and the GFOA targets were between 17 and 25% of annual revenues).FL league of Cities survey of 316 members reported an average of 21.5%.
2013/14 CAFR page 18. The Auditors stated that the City’s financials were good, the unrestricted reserves were $9.4M and increased by $493.5; total reserves were $14.7. Use of these reserves is at the discretion of the CC.
Average Reserves for the last 10 years was $8.5M
Total debt per capita is the lowest in a decade (with a reduced population)
Total debt is $9.1M; probably $8.4 by year end 14/15.will be in the $5M range end of FY 16/17 as two debts are defeased.
Interest return on Reserves is $60K on $14.7M. Given inflation at 2%plus, net present value of the fund’s earnings, is best utilized for increasing the City’s assets and improving the infrastructure
Debt service is 3% of expenses in the GF
$9.4M in GF; increased from $7.7 in 2010/11FY
Represent 45.6% of the annual revenues 2013/14 (and equivalent to 2.25 years of property taxes and will increase); 2014/15 results through 10 months estimate a $300K surplus in the year end fund balance. Surpluses are a result of work which does not materialize deferred maintenance and services not provided. Personnel costs which are @75% of the budget are included for headcount levels for a full 12 months; force additions after 10/1 and losses from 10/1 through 9/30/16 cause a cost reduction. I have an analysis of these data, assuming no personnel expense shortfall for 10 months reviewing the front, back end periodic payments, seasonal and working days per month. Of the 129 operating accounts and separate one debt payment account, Revenues were assumed as budgeted. I believe the $300K surplus is conservative.
Currently there are 5 existing part time job openings and 7 permanent positions to be added in15/16; of the approximate $16M in budgeted personnel costs next year, these additions will cost @$600000. Staff losses next year would also have to be filled. Thus any delays in hiring will result in a surplus. Assuming that staff growth will occur beginning 10/1/15 is unrealistic.
A 3% wage increase is being negotiated and budgeted for 12 months, may not be effective 10/1.
The reserve use and level when exceeded would be transferred to the next year’s budget stabilization, asset growth, infrastructure improvement and/or reduce taxes.
Debt is separated from operating expenses; COVB Quarterly Financial Report page 15. The Enterprise funds do not include debt payment6s in expenses when computing operating income.
Pay from the reserve the Series 2012B loan $694484 in budget and $204641 (restricted in the 311 Fund which is funded by the one cent Sales Tax); which in turn funds a portion of the $450K in the GF; And, the $41719 payment to FEMA for events over10 years ago. COVB is endeavoring to have these payments reimbursed.
Eliminate the $45000 dune restoration. Dune restoration is a result primarily of storms and in most years expenses are zero.
Total budget reductions $1005844.
No other budget /services/ staff/ reductions.
Establish reserve policy use and levels based on risk analysis, unique configuration of COVB, size, tiered levels, seasonality, and strategic plan. Additional secondary protection would be lines of credit, borrowing and tax increases.
Additional recommendations/considerations reviewed at the FC meeting
Sale/ lease of Dodgertown and Old Post Office site will increase revenues/Reserve and cash position.
Monetize : other surplus property; underutilized facilities/assets – consider consolidation of staff and operations, non performing assets/facilities (recreation programs and rental space)
Evaluate selected outsourcing; public/private enterprise for the marina
Deficit spending is incurring liabilities without sufficient funds. Utilizing idle/excess cash which continues to grow with a one half of one percent return, and accumulates from deferred services/maintenance and non materializing costs to pay down debt and fund required assets, capital projects is prudent and responsible.
Other major challenges confronting the City are the Pension conversion and costs, establishing a OPEB trust fund, reduction of Enterprise fund transfers, monetizing assets and formulating short/long term strategic plans.
In the past, unrestricted reserves have received limited attention in budget workshops, and COVB has no policy re use and level nor a strategy if the fund is over or below target ratios. I believe that focusing upon the fund by the FC is positive and productive.